Avista
Utilities customers have an opportunity to comment on two proposed rate
adjustments.

The first
is a proposed settlement to a rate case filed by the company last March that
would phase in a 9.25 percent electric rate increase over three years, with the
first year increase of 3.6 percent effective Oct. 1. On the gas side, the
increase would be 1.9 percent phased in over two
years. Commissioners will conduct a telephonic public hearing on that proposal
on Aug. 26 at 7 p.m., Pacific Daylight Time.

The second
is the company’s annual Power Cost Adjustment, (PCA) which would increase rates
for one year an average 2.6 percent, also effective Oct. 1. The commission is
taking written comment on that request through Sept. 16.

If the base
electric rate increase settlement is approved, the residential rate for an
average customer who uses 1,000 kWhs per month would increase by about $3.50
per month from $80.90 to $84.40. If the one-year PCA is approved, an average
residential bill would increase by $1.88 per month.

General rate case

When Avista
filed its general rate case last March, it requested a one-time 14 percent
increase in electric rates and 3.6 percent increase in gas rates. Several
parties to the case, including those representing customer groups, have reached
a settlement in the case that, with the help of a deferred tax credit,
significantly reduces Avista’s original request. The settlement proposes to
phase in the rate increase as well as the tax credit to mitigate the impact of
the increase given the current state of the economy.

Parties to
the case, including commission staff, the Community Action Partnership Association
of Idaho and the Snake River Alliance, state they believe the proposed
settlement is a better deal for customers than could have been achieved through
hearings. In addition to the aforementioned, other parties agreeing to the
settlement include Avista Utilities, Clearwater Paper Company, the Idaho
Conservation League and Idaho Forest Group LLC.

The
commission is not bound by the settlement and will independently review it to
determine if it is in the interest of both customers and the utility. The
commission may accept, reject or state additional conditions under which the
settlement will be accepted. The three commissioners who decide the case will
take public testimony in a telephonic hearing on Thursday, Aug. 26, at 7 p.m.
Pacific Daylight Time. (Details on how to participate in the hearing are
included at the bottom of this press release.)

The
commissioners will also conduct a technical hearing on this matter, also on
Thursday, Aug. 26, at 9:30 a.m. Mountain Daylight Time in the commission
hearing room, 472 W. Washington St., in Boise.

The
proposed annual revenue increase for Avista on the electric side is $21.25 million.
The company requested $32.1 million. On the gas side, the proposed annual
revenue increase is $1.85 million. Avista requested $2.6 million. The proposed increases
are to be offset by $17.5 million of deferred income tax. The offset will be
phased in over the first two years of the three-year phased rate increase so
that increases would be as follows:

-- Oct. 1,
2010 -- 3.6 percent electric and 1.9 percent gas.

-- Oct. 1,
2011 – 3.9 percent electric and 0.72 percent gas.

-- Oct. 1,
2012 – 1.74 percent electric and 0 percent gas.

The
settlement also proposes that Avista increase funding for low-income
weatherization from $465,000 to $700,000 per year.The settlement parties also agreed that
Avista provide $40,000 to Community Action Partnership agencies for low-income
outreach and education programs about energy conservation. The company will
also conduct five energy conservation workshops for senior citizens in five
Idaho communities no later than Dec. 31, 2011.

The
commission is well aware of the impact of rate increases in today’s economy, particularly
on customers with low and fixed incomes. It has received dozens of comments
from concerned customers asking the commission to deny Avista’s application. While
the commission does all it can to find expense reductions and other methods to
mitigate the impact of rate increases, state law does not allow the commission
to reject rate increases without review. State statutes require that all
regulated utility rate requests be considered by the commission to determine
whether the expenses the utility seeks to recover through customer rates are needed
to serve customers and if they are prudently incurred. The commission may deny expense recovery if
the company fails to provide evidence that adequately supports the new expenses
as needed to serve customers and prudently incurred. All commission decisions
can be appealed to the state Supreme Court by the utility, intervenors or
customers.

Avista
claims the increases are necessary because of escalating power supply costs,
increased costs to meet new federal requirements that ensure reliability, and
the need to replace aging infrastructure.

Power
supply contracts that provide Avista customers with about 100 average
megawatts, about 10 percent of the company’s entire retail load, expire at the
end of this year. The power provided by these contracts is about 3 cents per
kilowatt-hour, which is well below the cost to replace that power. Also included in this case are about $21
million in costs related to a power purchase agreement with the owners of the
Lancaster natural gas generating station near Rathdrum. About 80 percent of
Avista’s requested increase is attributable to the Lancaster agreement,
termination of the low-cost power contracts and increased customer load.

Power Cost Adjustment

Below
normal hydro generation and costs associated with the Lancaster generating
plant resulted in more power supply expense than included in base rates
resulting in Avista’s proposed one-year 2.6 percent PCA surcharge. If approved by
the commission, the surcharge would increase from the current 0.344 cents per
kWh to 0.532 cents per kWh.

The annual
PCA increases or decreases rates depending on conditions outside the company’s
control that can dramatically alter power supply expense. Those conditions
include variations in hydroelectric generation caused by lack of streamflows or
unanticipated changes in fuel costs or wholesale market prices for energy.

During
those years when power supply expenses are less than what is already covered in
base rates, customers receive a credit. During years when power supply expenses
are greater than included in base rates, customers get a surcharge. Both the
surcharge and credit last for 12 months and then a new adjustment will be
calculated to adapt to changing conditions and updated projections. The updated
PCA is effective Oct. 1 of each year. Unlike a general rate case, a PCA increase
does not increase company earnings. The PCA surcharge is collected from
ratepayers, kept in a deferred account, and then passed directly to wholesale
power and fuel suppliers.

Customer comment

To listen in or
to testify during the telephonic Aug. 26 public hearing regarding the proposed
settlement to the general rate case,
customers may dial toll-free 1-800-920-7487.
You will be asked to enter a “participant code,” which is 76373262. Participants are
asked to place their calls within 15 minutes before the start of the 7 p.m. Pacific
Time hearing although calls will be accepted after the hearing begins. The
process will then continue as follows:

After
dialing the number and entering the participant code, customers are
welcomed into the meeting and may listen to the entire hearing. The phones
of all those listening will be muted except for the person testifying.

If you would like to testify, press *1
(star one) on the phone key pad at any time and you will be placed in a
queue of those wanting to testify. When it is your turn to testify, a
prompt will say, “Ask your question.” At that time, you will be sworn in
by a commissioner, asked to state your name and address, and then be able
to offer your testimony. If, after indicating you want to testify you
decide against testifying, push the # (pound) key and you will be taken
out of the queue.

Those
providing testimony are asked to eliminate any background noise (TV,
radio, etc.)

At
the conclusion of your testimony you may be asked questions.

The telephonic hearings make it possible
for customers to testify without having to leave the comfort of their homes to
do so. It also saves the considerable expense of time and travel for
commissioners and staff .

Those wanting to provide written comment
in the Power Cost Adjustment case
must do so by Sept. 16. Comments can be submitted via e-mail by accessing the
commission’s homepage at www.puc.idaho.gov
and clicking on "Comments & Questions About a
Rate Case." Fill in the case number (AVU-E-10-03) and enter your comments.
Comments can also be mailed to P.O. Box 83720, Boise, ID 83720-0074 or faxed to
(208) 334-3762.